New York (CNN) -- October has a long history of scaring Wall Street, and this week's market action is serving a particular dose of terror for traders.
Markets fell sharply on Tuesday. The Dow lost 454 points, or 1.3%, posting its biggest drop since March and turning negative for 2023.
CNN's Fear and Greed Index, which tracks seven market indicators, sank to an "Extreme Fear" reading of 14, marking the index's lowest level since October last year.
And with bank earnings reports starting Friday the 13th and the Federal Reserve's upcoming monetary policy meeting on Halloween, this spooky season may be long for markets.
Here's why investors are scared:
Rates and the Federal Reserve: Rebounding in corporate debt sales and rising bond yields have pushed stocks lower. Stocks typically suffer when government bond yields are high, as it means investors can earn high returns on lower-risk assets.
Meanwhile, better-than-expected employment data has exacerbated anxiety that the Federal Reserve will decide to keep interest rates high for longer. Mortgage rates are approaching 8 percent after hitting their highest level since 2000 last week. High interest rates tend to erode corporate profits and drag down the value of stocks.
Government dysfunction: Volatility is compounded by chaos in the U.S. Congress. Markets continue to reeling from the federal government shutdown, which was narrowly averted last weekend, over the fiscal budget. And on Tuesday, House Republicans voted to impeach President Kevin McCarthy for working with Democrats to prevent the shutdown.
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"The news coming out of the House of Representatives once again highlights the difficult political context in which these issues are addressed," said Michael Reinking, director of research at the New York Stock Exchange.
Moody's, the only major credit rating firm to maintain a perfect U.S. rating, has warned that a government shutdown would be "credit negative" for the United States. Further political turmoil could also trigger a downgrade.
In addition, some 43 million Americans will face their first student loan bill since 2020 next week, which could hamper consumer spending.
Geopolitical risks remain elevated as Russia's war on Ukraine continues and US-China relations remain tense. Oil prices, meanwhile, remain near their highest level in more than a year.
But while the problems are piling up, some analysts still think this drop is mainly due to seasonality.
The "October effect": several historic stock market crashes have haunted the autumn month. Black Tuesday, the 1929 market crash that led to the Great Depression, Black Monday 1987 and the beginnings of the 2008 financial crisis took place in October.
October also marks the end of the fiscal year for many U.S. mutual funds. This sometimes results in what's known as "window makeup," in which fund managers sell low-yielding securities and buy better-performing alternatives to improve the appearance of their portfolios.
These events have led investors to fear the damn "October effect", a supposed downward trend of the stock market throughout the month. The statistical evidence doesn't entirely support the phenomenon, but the level of superstitious caution on Wall Street is real.
This can create a self-fulfilling prophecy. As investors become wary of the effect, their increased caution or willingness to sell at the first sign of volatility could lead to declines.
Although October has witnessed sharp declines at times, it has also witnessed significant market recoveries and gains. In the long run, October's results, when averaged, are not as dire as its reputation might suggest.
No particular month can be considered the worst.
As Mark Twain wrote in 1894, "October. It is one of the peculiarly dangerous months to speculate in stocks," adding that "the others are July, January, September, April, November, May, March, June, December, August and February."